Randy Williams
Owner and General Manager at Sino Sales & Support Ltd
You have a new idea/product/prototype and it’s time to research having it manufactured. Your friends, family, invention clubs, consultants and your lawyer will all tell you before showing your invention to anybody to make sure the prospective manufacturer signs an NDA or NNN ahead of time. If dealing only in the Western world of companies, I can’t disagree. But if you send either of these documents written in English to be signed by a trading company or factory in China, it provides virtually no protection at all.
Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
Personally, I have signed hundreds if not thousands of NDA’s over the 20 years working in China. But if I were unscrupulous, it would be incredibly easy to simply not abide by them and on top of that, there is almost nothing you can do about it. I’ll also remind you that there are plenty of unscrupulous people/factories/trading companies in China. I’m sorry to be the bearer of bad news, but you are NOT protected at all. It is in my experience working in China that most companies want long lasting relationships but might jump ship if they find bigger profits crossing into the grey area. However, if you have a solid relationship including an ongoing history with a supplier, stable orders and ongoing business, then there is an opposite effect. That trustworthiness is much more powerful than the paper documents we are talking about. This whole situation is a catch 22. If you have no relationship, then how do you build one in the beginning? How do you get started? I’ll talk more about that in a few minutes. Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
NNN’s (Non-disclosure, Non-use, Non-circumvention), if properly executed in Mandarin, could have some value, but most likely not and or is on a limited basis. What majority of people overlook is the overall cost to defend your claim if you find a violation. Let’s say you find your exact idea that you have disclosed to a person or company into a product that’s recently been produced. You need to do two things if this happens. First, you need to find the factory that stole the idea and then second, you need to prove that this factory was privy to the information you supplied. Let’s say you found the link, now you need to get your international lawyer to start the process to lawfully prove your claim and then get a judgment in your favor. A positive verdict could take a few years, which is a large MAYBE. But now you have already spent tens of thousands of dollars trying to get the judgment, now try to collect the judgement. You’re now broke and the company/person who broke your agreement has already infiltrated the market at a price you probably can’t compete with. Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
Patents are known as the holy grail to inventors and companies alike. For you to prevent a copy of your invention entering the US or other protected country, then a patent is your best bet. But just like the problem written above, it’s easy to spend massive amounts of money to defend your patent and stop the stolen idea from entering the country. The moment you stop one company from selling the knock off, another two knock offs show up on store shelves or on Amazon. You will then spend all your money in defensive mode, let alone the original $10,000 or more to get the patent in the first place. Having a patent can’t hurt you, but that depends on how far you’re willing to go to defend it in the long run.
Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
There are plenty of arguments to get a patent for your product. First off, let me say if your product is a fad item, novelty, or just won’t have the ability to bring in revenues of multiple millions of dollars, then it’s probably not worth it. Now after saying that, if you have an exit plan to sell the idea/patent to another company, that company will probably only invest if your idea/product is patent protected. If you are a large company and plan to spend the immense amounts of money defending your patent, then again, it’s probably a great idea to acquire a patent. A patent also provides assurance to retailers/distributors that your idea isn’t a knock off as well. This leverages your ability to be seen as trustworthy. Another potential problem you have to look out for is having your patent “Invalidated”. This is another huge problem and you can watch the documentary called “Invalidated” to learn more about that. You can rent on Amazon Prime.Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
It’s not reasonable to think you can fully protect yourself 100%. But for sure there are ways to limit your exposure. Let’s say you have a new innovative kitchen countertop toaster you want to manufacture. The first thing many will do is reach out on Alibaba.com and find current manufacturers that make toasters. This seems reasonable since they have the experience to manufacturing toasters. But your NDA or NNN will not ensure this factory will not steal your idea and simply manufacture your toaster themselves. They already have customers all over the world buying toasters so they can infiltrate markets quickly and before you can even get started.
Reaching out to a reputable manufacturing services company is one such way to limit your exposure to unscrupulous manufactures. They can break up the manufacturing so that no one company has all the information needed to make your product. Taking the toaster as an example, they might choose to buy the toaster related specialty parts from a toaster factory, and buy the housing, circuit boards and other parts from other factories that specialize in those components and bring them all into a trusted assembly house to finish off the assembly. Attempting to manage this without experience working with China factories and assembly houses is difficult at best. The small management fees charged from management companies is a small price to pay for solving big problems and streamlining the process all the while protecting your invention or idea.
A word of caution, even after you take all the necessary steps to insure your product is not knocked off before you even get your first order, you still have the problem of once it hits the store shelves or explain everything on Kickstarter or Indiegogo.com, anybody can reverse engineer your idea and then get it produced maybe even faster than you can.
Only you can determine if your idea or invention will have the staying power to provide huge returns and warrant the extra costs of patenting it and defending the patent if needed.
Does all this mean you shouldn’t have an NDA or NNN when dealing with a Chinese supplier? Of course not. But statistically, in over 90% of situations when an NDA or NNN is used, it’s useless. There is no harm in attempting to use either, but just understand they have no teeth for your protection.
For more information on how we can help you protect yourself in China, reach out to me at rwilliams@world-trading.com.
